EXHIBIT 1-10 SLIP SHEETSyosemite.epa.gov/oa/EAB_Web_Docket.nsf/Attachments By ParentFilingId...Sep...

EXHIBIT 2

1 MINNESOTA/2012365.0037/12105686.6

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF OKLAHOMA

(1) LAND O’ LAKES, INC.,

Plaintiff, Case No. v. (1) UNITED STATES OF AMERICA,

Defendant.

PLAINTIFF LAND O'LAKES, INC.'S COMPLAINT

CIV-15-863-L

Case 5:15-cv-00683-L Document 1 Filed 06/23/15 Page 1 of 31

2 MINNESOTA/2012365.0037/12105686.6

TABLE OF CONTENTS

Page

I. Introduction ......................................................................................................... 4

II. Parties ............................................................................................................ ......5

III. Jurisdiction and Venue ........................................................................................ 6

IV. Factual Basis for Plaintiff's Claim ....................................................................... 8

A. The FCD Provided Protection from Liability to Land O' Lakes ........................ 9 B. The Closure Order Provided Protection from Liability to Land O' Lakes ....... 12 C. The 1996-97 Salvage Operations by the Subsequent Owners Resulted in

Releases at the Site ........................................................................................... 15 D. Despite Knowledge of this Court's FCD and Closure Order, EPA Issued its

Formal Demands and UAO that Breached and Violated these Orders..……..16 E. The Conditions at the Site were "known by the United States and existing

as of the date of the lodging of this Decree" .................................................... 21 F. The Covenant Not to Sue in the FCD and the Release of Liability in the

Closure Order Establish the Non-Liability of Land O'Lakes for CERCLA Claims .............................................................................................................. 23

G. Res Judicata and Collateral Estoppel Bar the Government's Suits against Land O'Lakes Subsequent to the FCD and Closure Order ................................ 25 H. The Anti-Duplication Provisions of RCRA and CERCLA Prohibit Any

Liability of Land O'Lakes and Any Administrative End Run by EPA ............ 27

V. Plaintiff's Declaratory Judgment Claim against Defendant ............................. 28

VI. Prayer for Relief ................................................................................................ 30


3 MINNESOTA/2012365.0037/12105686.6

ATTACHED EXHIBITS

1. Court's Final Consent Decree of December 11, 1987, in U.S. District Court, Western District of Oklahoma, Civil Action No. 84-2027-A.

2. Court's Order for Closure of the Final Consent Decree of October 25, 1994, in U.S. District Court, Western District of Oklahoma, Civil Action No. 84-2027-A.

3. Government's Second Amended Complaint of August 15, 1985, in U.S. District Court, Western District of Oklahoma, Civil Action No. 84-2027-A.

4. Court's Partial Consent Decree of May 1, 1986, in U.S. District Court, Western District of Oklahoma, Civil Action No. 84-2027-A.

5. Supplemental Brief of the Hudson Liquidating Trust Regarding Hudson's Motion to Terminate Consent Decree (September 23, 1994) (without attachments).

6. United States' Supplemental Brief Regarding Hudson's Motion to Terminate Consent Decree (October 17, 1994) (without attachments).

7. Facsimile Letter of October 25, 1994, to the Honorable Wayne E. Alley from counsel for Hudson with a facsimile copy to Department of Justice counsel for the United States.


4 MINNESOTA/2012365.0037/12105686.6

Plaintiff Land O'Lakes, Inc. ("Land O'Lakes") for its Complaint against Defendant

United States of America, which has acted by and through the United States

Environmental Protection Agency ("EPA"), (collectively, "Government"), states as

follows:

I. Introduction

1. Land O'Lakes is a member-owned agricultural cooperative that was

originally formed in 1921. Among other business lines, it is a producer and marketer of

dairy food products, and produces agricultural supplies.

2. Land O'Lakes is covered by and the beneficiary of the protections from

environmental liability it received in this Court's Orders regarding the Hudson Oil

Refinery, f/k/a Cushing Refinery and n/k/a the Hudson Refinery Superfund Site, in

Cushing, Oklahoma ("Site").

3. This Court entered its 1987 Final Consent Decree ("FCD") (Attached as

Exhibit 1) and 1994 Order for Closure of the Final Consent Decree ("Closure Order")

(Attached as Exhibit 2) regarding the Site in United States of America, Plaintiff v.

Hudson Refining Co., Inc., and Hudson Oil Co., Inc., Defendants, United States District

Court for the Western District of Oklahoma, Civil Action No. 84-2027-A. This Court's

FCD and Closure Order provided protections from liability to Land O'Lakes for the Site.

These protections included a covenant not to sue in the FCD and a release from liability

in the Closure Order.


5 MINNESOTA/2012365.0037/12105686.6

4. Land O'Lakes brings this action for declaratory relief1 because the

Government knowingly violated and breached this Court's FCD and Closure Order

regarding the Site as these Orders pertain to the rights of Land O'Lakes. In disregard of

the protections owing to Land O'Lakes under the FCD and Closure Order, EPA issued its

2009 Unilateral Administrative Order ("UAO"), purportedly under CERCLA2, to Land

O'Lakes requiring actions at the Site, and threatened to sue Land O'Lakes for cost

recovery for EPA's past response actions at the Site. Land O'Lakes has fully complied

with the UAO.

5. Land O'Lakes seeks a declaration of its non-liability to the Government

with respect to the Site as a result of the protections granted to it under the FCD and the

Closure Order. Land O'Lakes further seeks a determination that the Government violated

the FCD and Closure Order when it issued its 2009 UAO and its formal demands for

payment of the Government’s past costs to Land O'Lakes for the Site.

II. Parties

6. Plaintiff Land O'Lakes, is a Minnesota cooperative corporation—a

member-owned agricultural cooperative. It was originally formed in 1921 as a marketing

cooperative association for dairy farmers in the upper Midwest. Land O'Lakes is widely

1 Land O'Lakes brings this action at this time for the reasons stated in Paragraphs 48-52 below of this Complaint. 2 Comprehensive Environmental Response and Liability Act ("CERCLA" or "Superfund," 42 U.S.C. § 9601, et seq.).


6 MINNESOTA/2012365.0037/12105686.6

known as a producer of high quality dairy food products bearing its famous "Indian

Maiden" logo.

7. Land O'Lakes has never directly owned or operated petroleum refineries.

Land O'Lakes is the successor by merger to Midland Cooperatives, Inc. ("Midland"),

which operated the refinery on the Site before it was sold to Hudson Oil

Company/Hudson Refinery Company ("Hudson"). References in this Complaint to

Midland include Land O'Lakes unless the context requires otherwise.

8. Defendant United States of America is the federal government and has

acted by and through the EPA and includes the EPA, as well as other current and former

agencies and instrumentalities of the United States government (collectively,

"Government").

9. Land O'Lakes and the Government are "persons" under RCRA3 and

CERCLA. 42 U.S.C. § 6903(15); 42 U.S.C. § 9601(21).

10. Land O'Lakes has provided a copy of this Complaint to the Attorney

General of the United States and to the Administrator of EPA in accordance with 42

U.S.C. § 9613(l).

III. Jurisdiction and Venue

11. The FCD provides:

A. This Court shall retain jurisdiction of this Final Consent Decree for purposes of ensuring compliance with its terms and conditions.

3 Resource Conservation and Recovery Act ("RCRA," 42 U.S.C. § 6901, et seq.)


7 MINNESOTA/2012365.0037/12105686.6

B. Plaintiff and Defendants each retain the right to seek to enforce the terms of this Final Consent Decree and take any action authorized by federal or state law not inconsistent with the terms and conditions of this Final Consent Decree or otherwise.

Final Consent Decree, Section XX, A and B. 12. Land O’Lakes, as a protected person under the FCD and Closure Order, has

standing to enforce these orders.

13. Consent decrees are subject to continuing supervision and enforcement by

the Court. A court has an affirmative duty to protect the integrity of its decree, and this

duty arises where the performance of one party threatens to frustrate the purpose of the

decree. A party who has fully obtained the benefits of a consent decree cannot then be

permitted to ignore such affirmative obligations as were imposed by the decree.

14. This Court has jurisdiction over this action pursuant to the FCD and the

Closure Order, 28 U.S.C. § 1331, 42 U.S.C. § 9613(b), 42 U.S.C. § 6928 and 42 U.S.C.

§ 9620, because Plaintiff alleges claims and seeks relief under federal law and the claims

require interpretation and resolution of the parties' duties and responsibilities under

federal law.

15. Additionally, this Court has authority to issue a declaratory judgment

concerning the rights and liabilities of the parties pursuant to 28 U.S.C. §§ 2201, 2202, 42

U.S.C. § 9613(g)(2) and Rule 57, Fed.R.Civ.P.

16. Venue properly lies in this Court pursuant to 28 U.S.C. § 1391(b) and 42

U.S.C. § 9613(b), because the Site is located within this judicial district, the alleged

releases of hazardous substances and other contaminants occurred within this district and


8 MINNESOTA/2012365.0037/12105686.6

the violations and breaches occurred within this district. In addition, venue is proper

because this Court entered the FCD and Closure Order.

IV. Factual Basis for Land O'Lakes' Declaratory Judgment Claim

17. The Site consists of approximately 200 acres in Cushing, Oklahoma. The

Site is a former oil refinery that was operated by several owners from on or before 1915

until ceasing operation in 1982.

18. When Hudson shut down the refinery on or about December 1982, it

expected the stoppage to be temporary and left some crude oil and refined products in

refinery pipes, equipment, a coke pond and tanks with contents in place. At the time of

shut down, the crude oil, refined products and feed materials left by Hudson were solely

derived from past Hudson operations. Hudson's shut down on or about December 1982

ceased all refinery operations, and despite expectations, such operations never resumed.

19. From 1943 until 1977, Midland Cooperatives, Inc. ("Midland"), the

predecessor of Land O'Lakes, owned and operated the Cushing Refinery.

20. On February 1, 1977, Midland sold the Cushing Refinery to Hudson which

caused Midland to be Hudson's immediate predecessor in interest of the Cushing

Refinery. Hudson operated the Cushing Refinery for approximately six years or until

December 31, 1982.

21. Midland merged into Land O'Lakes on January 1, 1982. Therefore, Land

O'Lakes, as successor to Midland by merger, became Hudson's immediate predecessor in


9 MINNESOTA/2012365.0037/12105686.6

interest of the Cushing Refinery on this date. As further described herein, under the FCD

and Closure Order, the immediate predecessor to Hudson was granted certain rights,

protections and benefits under these orders.

22. On January 3, 1984, Hudson filed for reorganization under Chapter 11 of

the Bankruptcy Code (D. Kansas, No. 84-20003).

A. The FCD Provided Protection from Liability to Land O' Lakes

23. On or about August 8, 1984, the United States, at the request of EPA, filed

its initial Complaint in this Court against Hudson regarding the Cushing Refinery in Civil

Action No. 84-2027-A. In its initial Complaint, the Government alleged violations of

federal hazardous waste management requirements and sought injunctive relief for

cleanup of the refinery and civil penalties against Hudson pursuant to RCRA, the federal

hazardous waste management act.

24. The Government amended its initial Complaint against Hudson on two

occasions, resting ultimately on its Second Amended Complaint filed on or about August

15, 1985 (Attached as Exhibit 3).

25. During the course of the litigation, the Government and Hudson partially

resolved the Government's allegations with the entry of a Partial Consent Decree

(Attached as Exhibit 4), which was entered by this Court on May 1, 1986. The Partial

Consent Decree required Hudson to undertake extensive "Site Investigation" activities as

more particularly spelled out in the "Addendum: Work Plan" attached thereto. The items

in the Addendum included:


10 MINNESOTA/2012365.0037/12105686.6

a. An inspection of all tanks and API separators, justification supporting any which are not subject to regulation as hazardous waste storage units, and information concerning those that are subject to regulation as hazardous waste storage units.

b. Removal of accumulated sludge from operating API separators in excess of

40% of volumetric capacity.

c. A site survey to assess: (i) the physical condition of tanks, (ii) records of reportable spills and response, and (iii) storm or process water drainage ditches.

d. A Site-wide groundwater investigation.

e. A Site-wide soil sampling and characterization investigation.

26. Ultimately, the Government and Hudson fully resolved the Government's

allegations with the Government's lodging of the FCD on or about October 13, 1987, and

the Honorable Wayne E. Alley, United States District Judge for the Western District of

Oklahoma, entered the FCD on or about December 11, 1987. Among other things, the

FCD required Hudson to perform Site-wide corrective action as described in the 41-page

"Addendum A Work Plan" to the FCD for the Site conditions which had been identified

and known by EPA to exist at the Cushing Refinery. The main Site-wide clean-up items

in the Addendum included:

a. Selected tank cleanout.

b. Soil excavation.

c. Biotreatment of visually contaminated soils.

d. Removal of North Oily Water Pond sludges and contaminated soils.

e. Groundwater remediation using a pump and treat system.

f. Removal and disposal off-Site of all RCRA waste.


11 MINNESOTA/2012365.0037/12105686.6

27. The FCD set forth a covenant not to sue as follows:

B. Except as provided below, the United States hereby covenants not to sue Defendants [Hudson companies] and their successors and assigns of the Cushing Refinery for corrective action claims under Section 3008(h) of RCRA, 42 U.S.C. § 6928(h), for conditions addressed in the United States' Second Amended Complaint that were known by the United States and existing as of the date of lodging of this Decree.

Paragraph B of Section XVI EFFECT OF SETTLEMENT, Final Consent Decree (Dec.

11, 1987) (emphasis added).

28. The Government’s Second Amended Complaint under its Third Claim for

Relief, Paragraph 29, notes that “The Regional Administrator has determined that the

Hudson facility is a hazardous waste facility authorized to operate under Section 3005(e)

of RCRA, and that there are or have been releases into the environment of arsenic,

barium, cadmium, chromium, lead, mercury, nickel, benz(a)anthracene, benz(a)pyrene,

benzo(b)fluroanthane and chrysene.” Paragraph 30 states that "such substances…are

hazardous wastes…." Paragraph 31 states that “The releases of hazardous wastes have

contaminated the soil throughout the site, and because of subsurface conditions at the

facility, such wastes are likely to migrate to the groundwater and surface water.” All four

“contaminants of concern” ("COCs") in the EPA’s 2007 Record of Decision ("ROD") for

the Site that EPA subsequently directed Land O’Lakes to remediate under its 2009 UAO

are included in this Second Amended Complaint list of chemicals. EPA knew when it

issued its 2009 UAO that these four COCs existed in 1987 at the Site and had described

the conditions resulting from their release which contaminated the soils throughout the

Site.


12 MINNESOTA/2012365.0037/12105686.6

29. Importantly, the 1987 FCD provided that the covenant not to sue provisions

expressly applied to Hudson's immediate predecessor in interest as to the Cushing

Refinery, which is Midland--now Land O’Lakes after its merger with Midland, as

follows:

C. …The covenant not to sue provisions of paragraphs B. and C. of this section shall be applicable to Defendants' immediate predecessor in interest of the Cushing Refinery ….

Paragraph C of Section XVI EFFECT OF SETTLEMENT, Final Consent Decree (Dec.

11, 1987) (emphasis added).

B. The Closure Order Provided Protection from Liability to Land O' Lakes

30. On or about November 30, 1993, the Hudson Liquidating Trust, on behalf

of Defendant Hudson companies ("Hudson Trustee"), filed Defendants' Motion for

Closure of the FCD and their Brief. Defendants stated: "Because of Hudson's diligence,

the requirements of the Consent Decree have been completed and, fortunately, the site is

environmentally sound." Id. at p. 10 of the Brief. Defendants requested the Court to

issue its order declaring that the obligations under the FCD have been satisfied.

31. The Hudson Trustee stated in a Supplemental Brief that it had "access to

funds to complete some work remaining under the FCD," if necessary, in the amount of

$6,542,000 plus estimated proceeds from sale of the remaining assets of the trust

"exceeding $2-3 million." Supplemental Brief of the Hudson Liquidating Trust

Regarding Hudson's Motion to Terminate Consent Decree, p. 9-10 (September 23, 1994)

(Attached as Exhibit 5).


13 MINNESOTA/2012365.0037/12105686.6

32. At first, the Government indicated some concerns about the Motion for

Closure of the FCD, but it ultimately resolved them and agreed that: "The United States

withdraws its opposition to the Trustee's Motion and agrees to termination of the Consent

Decree. The Trustee's Motion to Terminate the Consent Decree is, therefore, unopposed,

and should be granted." United States' Supplemental Brief Regarding Hudson's Motion

to Terminate Consent Decree, p. 1 (October 17, 1994) (Attached as Exhibit 6).

Interestingly, the Government states that: "EPA, DOL [U.S. Department of Labor] and

DOE [U.S. Department of Energy] agree that additional estate assets should not be made

available to the Trustee for environmental clean-up [of the Cushing Refinery]." Id. at 9.

33. On October 25, 1994, counsel for Hudson faxed a letter to the Honorable

Wayne B. Alley with a facsimile copy to Department of Justice ("DOJ") counsel for the

United States (Attached as Exhibit 7). The letter advised that Hudson counsel and DOJ

counsel "…have discussed how to proceed, and they are in agreement that the Court

should enter the Order that was submitted to the Court with the filing of Hudson's

Motion. For the convenience of the Court, a copy of that proposed Order is attached."

This proposed Order is identical to the Order for Closure of the FCD entered by the Court

as described in Paragraph 34.

34. On October 25, 1994, the Honorable Wayne E. Alley, United States District

Judge for the Western District of Oklahoma, entered his Order for Closure of the Final

Consent Decree in Civil Action No. 84-2027-A and stated:


14 MINNESOTA/2012365.0037/12105686.6

Came before the Court the motion of the [Hudson companies], defendants in the above-entitled and numbered cause, requesting closure of the Final Consent Decree, and upon review of the evidence, the Court is of the opinion that the motion should be granted. It is therefore, ORDERED that the obligations under the Final Consent Decree and its incorporated Work Plan are hereby satisfied and terminated, thereby releasing the [Hudson companies] from any further obligations thereunder.

Order for Closure of the Final Consent Decree (Oct. 25, 1994), United States of America,

Plaintiff v. Hudson Refining Co., Inc., and Hudson Oil Co., Inc., Defendants, United

States District Court for the Western District of Oklahoma, Civil Action No. 84-2027-A

(emphasis added).

35. Hudson was found by the Court to have satisfied all its obligations owing

under the FCD and its incorporated Work Plan, which satisfied obligations that fell

within the scope of the covenant not to sue provisions of the FCD. Hudson’s obligations

were terminated by the Court, and Hudson was granted a release from any further

obligations under the FCD. Land O'Lakes is the immediate predecessor in interest to

Hudson as to the Cushing Refinery and is the recipient and beneficiary of the covenant

not to sue in the FCD, as well as the subsequent release of further obligations pursuant to

the Closure Order. Land O'Lakes therefore has the right to enforce the FCD and Closure

Order containing the covenant and release provisions.

36. For the reasons set forth in Paragraphs 28 supra, there are no claims

remaining to the Government under the FCD based on a past or present release of a

hazardous waste or hazardous constituent that was unknown or undetected by the United

States at the time of lodging the FCD under Section XVI EFFECT OF SETTLEMENT,


15 MINNESOTA/2012365.0037/12105686.6

Paragraph C. 2. Further, the Closure Order precludes any claims by the Government that

the Defendants failed to meet any of the requirements of the FCD--see Section XVI

EFFECT OF SETTLEMENT, Paragraphs C.1. and C.3.4 As a result, the provisions of

the covenant not to sue in paragraph B of Section XVI and the release provisions of the

Closure Order are fully enforceable by Land O’Lakes.

C. The 1996-97 Salvage Operations by the Subsequent Owners Resulted in Releases at the Site

37. On or about February 1989, the Hudson Trustee sold the Cushing Refinery

to a new owner, U.S. Refining and Marketing, Inc. ("U.S. Refining").

38. On or about October 1996, U.S. Refining sold the Cushing Refinery to

Quantum Realty Company ("Quantum").

39. In the mid-1990s, U.S. Refining, Quantum and/or Turner, Mason &

Company ("Turner") hired Western Environmental of Oklahoma ("Western

Environmental") to conduct certain salvage operations at the Site. On or about 1996 and

1997, Western Environmental, as the agent of U.S. Refining, Quantum and/or Turner,

breached piping and tanks and cut off the tops of above-ground storage tanks causing

discharges of liquids and sludge to the Site soils. Western Environmental also left behind

loose, friable asbestos, which was discarded or left loose and hanging from equipment

and buildings that Western Environmental partially demolished during its salvage

operations. Western Environmental, as the agent for U.S. Refining, Quantum and/or

Turner, conducted negligent and incomplete salvage operations at the Site, resulting in

4 Section XVI Effect of Settlement, Paragraph C.4., is not applicable to this action.


16 MINNESOTA/2012365.0037/12105686.6

leaks and releases of crude oil, products and some sludge to occur on or about 1996-

1997.

40. From approximately October 1998 to December 1999, EPA performed an

emergency removal action at the Site and incurred costs.

41. From approximately September 2001 to June 2003, EPA performed a non-

time critical removal action at the Site and incurred costs.

D. Despite Knowledge of this Court's FCD and Closure Order, EPA Issued its Formal Demands and UAO that Breached and Violated these Orders

42. On February 2, 1998, the EPA, Region 6, on-scene coordinator for the

Hudson Refinery Site sent a POLREP (a removal response report) to the Chief and

Director of the Office of Emergency & Remedial Response, EPA, Region 6, and to the

State Contact regarding the Hudson Site. The words in this POLREP show the

knowledge of EPA concerning the FCD and Closure Order:

The EPA issued Resource Conservation and Recovery Act (RCRA) 3008 (a) and (h) administrative actions against Hudson Refinery in 1984 and 1985 for violations including a release of hazardous waste from the Land Treatment Unit (LTU) at the site. A Final Consent Decree (FCD) was included in the Hudson Refining bankruptcy proceedings and finalized on December 10, 1987. Remediation at the site began with the lodging of the FCD, which required the following activities to be conducted at the site; tank clean-out; soil excavation; biotreatment of contaminated soil; removal of north oily water pond sludges and soils; groundwater remediation; and groundwater monitoring at the LTU. On October 25, 1994 The U.S. District Court for the Western District of Oklahoma determined that the conditions of the FCD were met and issued an "order for closure" of the FCD.

EPA, Region 6, POLREP, Hudson Refinery Site, Cushing, Payne County, Oklahoma,

from Karen McCormick (OSC for Hudson Site) to Charles A. Gazda (Chief and Director,


17 MINNESOTA/2012365.0037/12105686.6

Region 6, Office of Emergency & Remedial Response) and Dennei Whitfield (ODEQ

State Contact ) (February 2, 1998), Bates No. LOL0049837.

43. On January 18, 2001, EPA sent a Special Notice and Demand letter (a

potentially responsible party letter under CERCLA) to Land O'Lakes, as the successor to

Midland, for payment of removal costs and to conduct the Remedial

Investigation/Feasibility Study ("RI/FS") at the Site. On or about March 26, 2001, Land

O'Lakes responded that it had no liability, but as a matter of corporate policy, Land

O'Lakes desired to cooperate with government agencies and work toward an amicable

resolution of allegations. Accordingly, Land O'Lakes offered to consider any other

information EPA had to support the allegations. None was provided by EPA.

44. From approximately 2004 to 2007, the Oklahoma Department of

Environmental Quality ("ODEQ"), on behalf of EPA, performed the RI/FS at the Site and

incurred costs.

45. On or about November 23, 2007, EPA issued its ROD, which selected

further remedies for the Site. In the ROD, EPA selected the remedial actions and

determined that the "contaminants of concern" at the Site were: arsenic, lead,

benzo(a)pyrene (a type of PAH), benzo(a)anthracene (a type of PAH) and benzene

(emphasis added). As noted in Paragraph 13, these were the same chemicals that EPA in

its 1985 Second Amended Complaint knew existed at the Site and were impacting

refinery soils, sediment and groundwater on a site-wide basis. Further, EPA in a single

sentence of the ROD and without any documented basis asserted that "visual

contamination" required remediation at the Site. This “visual contamination” referred to


18 MINNESOTA/2012365.0037/12105686.6

in the ROD is the same condition that EPA knew existed at the Site when it lodged the

1987 FCD and required the surface conditions of these visually contaminated soils to be

remediated. EPA also had extensive information on subsurface soil contamination at the

Site at the time of lodging the 1987 FCD, but did not require these known conditions to

be addressed as part of the FCD.

46. On or about February 19, 2008, EPA sent another Special Notice letter to

Land O'Lakes that demanded that Land O'Lakes perform the Remedial Design/Remedial

Action ("RD/RA") specified in the ROD and pay EPA and ODEQ past costs of $21.8

million for ODEQ investigation costs and the costs of the two EPA removal actions.

47. On or about May 28, 2008, Land O'Lakes sent EPA a letter that expressly

referenced the FCD and the Closure Order. The letter stated that the corrective action

and closure under RCRA satisfy the requirements of both RCRA and CERCLA and cited

EPA's Coordination between RCRA Corrective Action and Closure and CERCLA Site

Activities, U.S. EPA, September 24, 1996. The letter advised that Land O'Lakes does not

understand how it could have liability under CERCLA based on the FCD and Closure

Order. EPA did not respond to this letter from Land O’Lakes.

48. On or about January 6, 2009, EPA issued the UAO for the Site requiring

Land O'Lakes to implement the remedy selected by EPA in its ROD by performing a

remedial design and remedial action at the Site, at Land O'Lakes sole cost. Paragraph

120 of the UAO provided for penalties of $32,500 per day and potential treble punitive

damages for noncompliance. The EPA purported to issue the UAO under the authority of


19 MINNESOTA/2012365.0037/12105686.6

CERCLA, 42 U.S.C. § 9606(a), without any mention of Court-ordered protections

afforded to Land O'Lakes under the FCD and Closure Order.

49. EPA's issuance of a unilateral administrative order or a potentially

responsible party ("PRP") letter constitutes a suit against a person. The formal demands

and 2009 UAO in this case are contrary to and in complete disregard of the protections

afforded to Land O'Lakes by this Court under the FCD and the Closure Order.

50. On February 10, 2009, Land O'Lakes issued its Notice of Intent letter to

comply with the UAO, but also preserving Land O'Lakes' objections. By statute, Land

O'Lakes cannot challenge the UAO, or the response action ordered under the UAO, in

federal court until the response action is completed. 42 U.S.C. § 9613(h).

51. During 2009 to the present, Land O'Lakes has performed the remedial

design and remedial action in accordance with the ROD and as ordered in the UAO.

52. Land O'Lakes received EPA's letter of June 19, 2015, which confirmed that

the remedial action construction work has been completed, that the remedial action work

has attained required performance standards, except for the performance standards

required for groundwater (as to groundwater, the EPA has approved Land O'Lakes' long-

term monitoring and Operation and Maintenance plan to address groundwater) and that

no additional modifications are required for Land O’Lakes’ Remedial Action Report or

the Data Evaluation Report. Until Land O'Lakes received the June 19 letter, Land

O'Lakes did not know whether EPA would require additional modifications to these

reports. The cleanup at the Site is completed, EPA has provided sufficient approval and

even if EPA had not provided sufficient approval, Land O'Lakes has the right to proceed


20 MINNESOTA/2012365.0037/12105686.6

because the response action is completed. Land O'Lakes has now fully or substantially

completed the required action under the UAO.

53. Land O'Lakes incurred significant costs as a result of compliance with the

UAO. In this action, Land O'Lakes does not seek reimbursement of any such costs from

the Hazardous Substance Fund under CERCLA, 42 U.S.C. § 9606(b)(2). Land O'Lakes

will file a separate and distinct petition for reimbursement of such costs before the EPA

Environmental Appeals Board to seek such reimbursement from the Fund.

54. Land O'Lakes brings this action to enforce its rights under the FCD5 and the

Closure Order in order to enforce the protections it received under the FCD covenant not

to sue and the Closure Order release and resolve pending and threatened controversies.

Land O'Lakes seeks a declaration that, because of the protections afforded to it under the

FCD and Closure Order of this Court, that: (1) it had no responsibility or liability

remaining to the Government at the time EPA issued the 2009 UAO, nor (2) any

responsibility or liability remaining for any costs incurred by EPA for its emergency

removal and non-time critical removal response actions EPA undertook, nor (3) any

responsibility or liability remaining for any costs incurred by EPA or ODEQ conducting

the RI/FS, oversight or any other costs at the Site. Land O'Lakes is entitled to all such

declaratory relief.

5 With respect to the time frame, the "covenant not to sue" provisions in FCD shall "remain in effect sine die." Since these provisions remain in effect indefinitely into the future, they are in effect to the present. FCD, Section XXI.


21 MINNESOTA/2012365.0037/12105686.6

55. Land O'Lakes fully reserves all rights, claims and defenses with respect to

the Government regarding the Site and does not waive or impair any of them by the

allegations in this Complaint.

E. The Conditions at the Site were "known by the United States and existing as of the date of the lodging of this Decree"

56. The FCD provided Hudson and its immediate predecessor in interest (Land

O'Lakes upon merger with Midland in 1982) a covenant not to sue from any further

corrective action claims under Section 3008(h) of RCRA, 42 U.S.C. § 6928(h), for

conditions "addressed in the United States' Second Amended Complaint that were known

by the United States and existing as of the date of the lodging of this Decree." The

Government lodged the FCD in October 1987.

57. The Government has defined the phrase "corrective action" in several of its

official publications. EPA's definition has broad parameters: "Corrective action typically

includes five elements common to most, though not all, cleanup activities: initial site

assessment, site characterization, interim actions, evaluation of remedial alternatives, and

implementation of the selected remedy." U.S. Environmental Protection Agency, RCRA

Orientation Manual, EPA530-F-11-003, p. III-121 (Oct. 2011). The phrase "corrective

action" typically refers to the cleanup process and all activities related to the

investigation, characterization and cleanup of a release of hazardous wastes or hazardous

waste constituents. U.S. Department of Energy, RCRA Corrective Action Definitions,

DOE/EH-413-044r, p. 2 (Revised Sept. 2002).


22 MINNESOTA/2012365.0037/12105686.6

58. Extensive groundwater investigations, soil borings, soil and pond sediment

sampling, laboratory data, maps, photographs, refinery shut-down conditions and Site

visual conditions were known and supported by multiple reports describing the various

investigations findings and Site conditions that existed at the time of EPA's lodging of the

FCD. These materials and reports compiled a broad and extensive list of conditions and

chemicals in the soil, sub-surface, sediments, surface water, groundwater and the refinery

equipment, pipes, buildings, tanks shut-down conditions, including "visual

contamination" throughout the Site from refinery releases. This data and Site information

collectively comprise the Site conditions, which existed and were known to the

Government at the time of lodging the FCD. The chemical list was comprehensive and

sufficient to characterize the media and areas at the Site, including "visual

contamination," and most but not all of these known conditions were addressed by EPA

under the FCD Work Plan.

59. EPA's activities subsequent to the FCD included an emergency removal

action, a non-time critical removal action, a RI/FS, ROD and the UAO. However, the

response actions taken or ordered by EPA subsequent to the FCD addressed conditions

that were known by the Government in October 1987 or that were caused by events or

activities by others after that time and after the sale of the refinery by Midland to Hudson.

60. The response actions at the Site by EPA in its emergency removal action

and its non-time critical removal action were directed at conditions known by the

Government and existing at the time the FCD was lodged. The costs associated with

these response actions are costs for which Land O'Lakes is not liable.


23 MINNESOTA/2012365.0037/12105686.6

61. The ODEQ RI/FS and ROD activities and the response actions required by

the 2009 UAO for the Site were directed at the same conditions known by the

Government and existing at the time the FCD was lodged. The costs associated with

these response actions are costs for which Land O'Lakes is not liable.

F. The Covenant Not to Sue in the FCD and the Release of Liability in the Closure Order Establish the Non-Liability of Land O'Lakes for CERCLA Claims

62. A cleanup under RCRA satisfies the requirements of both RCRA and

CERCLA. The EPA has stated:

Generally, cleanups under RCRA corrective action or CERCLA will substantively satisfy the requirements of both programs. We believe that, in most situations, EPA RCRA and CERCLA site managers can defer cleanup activities for all or part of a site from one program to another with the expectation than no further cleanup will be required under the deferring program. For example, when investigations or studies have been completed under one program, there should be no need to review or repeat those investigations or studies under another program. Similarly, a remedy that is acceptable under one program should be presumed to meet the standards of the other.

U.S. Environmental Protection Agency, Coordination between RCRA Corrective Action

and Closure and CERCLA Site Activities (Sept. 24, 1996); U.S. Environmental Protection

Agency, The Environmental Site Closeout Process Guide (Sept. 1999) ("In general,

cleanups under RCRA corrective action or CERCLA can satisfy the requirements of both

programs.").

63. By entering into the FCD, the Government knew that a release of liability

and/or a covenant not to sue under RCRA § 3008(h) terminates the liability of a party

unless the Government expressly reserves the right to take additional action under


24 MINNESOTA/2012365.0037/12105686.6

CERCLA. The EPA's own guidance warns its staff about the use of covenants not to sue,

as follows:

Releases from liability and covenants not to sue may be sought by parties negotiating § 3008(h) orders. These provisions terminate or seriously impair the Federal Government's right of action against a party…. In addition, EPA personnel should exercise particular care in drafting such provisions to ensure that they do not restrict the operation and enforcement of the on-going RCRA regulatory program. Moreover, the order should also contain a provision reserving the Agency's right to take additional action under RCRA and other laws. For example, EPA should reserve the right to expend and recover funds under CERCLA….

U.S. Environmental Protection Agency, Interpretation of Section 3008(h) of the Solid

Waste Disposal Act (December 16, 1985) (which was in effect at the time of the lodging

of the FCD). The Government has applied this Interpretation to issue RCRA orders that

reserve CERCLA rights.

64. In this RCRA action, the Government in the covenant not to sue in the FCD

references Section 3008(h) but it contains no reservation of rights under CERCLA. This

Court's release of liability in the Closure Order has no reservation of rights under

CERCLA. Further, the limited reservations found in the FCD in Section XVI EFFECT

Of SETTLEMENT, Paragraph C. 1-4 under RCRA were either satisfied (1-3) or not

applicable (4) to this action.

65. The Closure Order terminated all liability for the obligations of Hudson to

complete the FCD Work Plan, and this release applied to Land O'Lakes, as the immediate

predecessor in interest, including any liability for Site conditions known by the United

States and existing upon lodging the FCD.


25 MINNESOTA/2012365.0037/12105686.6

G. Res Judicata and Collateral Estoppel Bar the Government's Suits against Land O'Lakes Subsequent to the FCD and Closure Order

66. The FCD and Closure Order are res judicata (often referred to as claim

preclusion). Res judicata prohibits the Government from asserting any claims or legal

theories, such as a CERCLA claim or legal theory, in any subsequent suit that was or

could have been asserted in the first suit.

67. The Government amended the original RCRA complaint in Civil Action

No. 84-2027-A on multiple occasions before the entry of the FCD in 1987 and the

Closure Order in 1994 and could have amended the complaint sometime in those years to

include a CERCLA claim. For example, on January 7, 1985, the Department of Justice

and the Superfund [CERCLA] Branch of Region 6 of EPA specifically considered

whether "…to amend the civil complaint filed on August 3, 1984 alleging RCRA

violations…" "…to include any possible CERCLA counts…." U.S. EPA, Region 6,

Memorandum Hudson Refining RCRA Referral/Use of FIT Personnel (January 7, 1985),

Bates No. LOL0074415. But the Government chose not to pursue a CERCLA claim in

Civil Action No. 84-2027-A. The doctrine of res judicata prohibits the Government in

this case from asserting claims or legal theories that were or could have been asserted in

the prior action.

68. The Government's Civil Action No. 84-2027-A and subsequent suits had

either identical, or closely related, causes of action because the 10th Circuit's

"transactional approach" includes all claims or legal theories of recovery that arise from

the same transaction, event or occurrence. Land O'Lakes is sufficiently in privy with the


26 MINNESOTA/2012365.0037/12105686.6

Hudson parties because: (1) Land O'Lakes benefitted from the protection against liability

provisions of the FCD and Closure Order (e.g., "The covenant not to sue provisions…

shall be applicable to Defendants' [Hudsons'] immediate predecessor in interest [Land

O'Lakes] of the Cushing Refinery ….); and (2) Land O'Lakes (by merger with Midland)

is the immediate predecessor in property interest in and title to the Cushing Refinery.

The United States District Court for the Western District of Oklahoma had competent

jurisdiction to enter the final, valid FCD and Closure Order, which were not appealed or

challenged. Res judicata therefore barred the subsequent suits, based on CERCLA claims

or theories, by the Government against Land O'Lakes.

69. Furthermore, the FCD and Closure Order are collateral estoppel (often

referred to as issue preclusion). Under collateral estoppel, when an issue of ultimate fact

has once been determined by a valid and final judicial ruling, that issue cannot be

litigated between the same parties in any future proceeding or lawsuit. With respect to

the issue in this case, this Court decided in the FCD and Closure Order to provide

protections from liability to Land O'Lakes for the Site. These protections included a

covenant not to sue in the FCD and a release from liability in the Closure Order. The

Government cannot deny or ignore these protections in its subsequent suits. Collateral

estoppel precludes subsequent litigation of the identical issue between the same parties,

even when raised in a different claim or cause of action. Collateral estoppel bars the

Government's subsequent suits.


27 MINNESOTA/2012365.0037/12105686.6

H. The Anti-Duplication Provisions of RCRA and CERCLA Prohibit Any Liability of Land O'Lakes and Any Administrative End Run by EPA

70. The anti-duplication provisions of RCRA bar the Government from seeking

double liability or recovery against Hudson and Land O'Lakes under CERCLA. 42

U.S.C. § 6905(b)(1). The United States, at the request of EPA, sued the Hudson entities

in 1984 for RCRA Section 3008(h) claims seeking cleanup of the Cushing Refinery. In

the settlement of these claims in the FCD, the United States covenanted not to sue the

Hudson entities and their immediate predecessor, Land O'Lakes, in exchange for

Hudson's performance, at its own cost, of the remediation at the Cushing Refinery plus

escrow and trust fund accounts of over $1 million dollars. The United States obtained its

first alleged liability for the Site under RCRA in the FCD. The anti-duplication

provisions of RCRA bar the United States from now seeking costs or a second or double

liability against Land O'Lakes under CERCLA for the Cushing Refinery.

71. In addition, the anti-duplication provisions of CERCLA explicitly prohibit

the Government from seeking double liability or recovery against Hudson and Land

O'Lakes under CERCLA. The Government has already recovered relief for the same

claims under the FCD under RCRA and is barred from now seeking costs or a second or

double liability against Land O'Lakes under CERCLA for the Cushing Refinery. 42

U.S.C. § 9614(b).

72. Moreover, CERCLA §§ 9613(f)(2) and 9613(f)(3), 42 U.S.C.

§§ 9613(f)(2), 9613(f)(3), bar the Government's past, present and future claims against

Land O'Lakes. The Hudson companies, and their immediate predecessor, did resolve


28 MINNESOTA/2012365.0037/12105686.6

their "liability to the United States" in the FCD and Closure Order. Since Land O'Lakes,

as the successor by merger to Midland, has "resolved" its liability to the United States,

the United States may not bring an action against Land O'Lakes. Therefore, the future

suits for cost recovery by EPA against Land O'Lakes are barred as a matter of law.

73. The Government has done an administrative end run around this Court's

protections afforded to Land O'Lakes in the FCD and Closure Order and other provisions

of the law by issuing the 2009 UAO and making its threatened claims for cost recovery

for costs it expended subsequent to the FCD. The facts underlying the claims, not the

parties' characterization of the claims, determine whether the claims arise from the same

subject matter as a settlement with the Government.

74. In this case, the Government's claims in the UAO and the threatened cost

recovery claims arise from the same conditions known to the United States and existing

at the time of lodging the FCD and as covered by the judicially-approved FCD and

Closure Order. The Government's actions against Land O'Lakes violate the Court-

ordered protections under the FCD and Closure Order.

V. Plaintiff's Declaratory Judgment Claim against Defendant

75. Land O'Lakes incorporates by reference each and every allegation of

Paragraphs 1 through 74 set forth above.

76. The Government's issuance of the UAO to Land O'Lakes violated and

breached the covenant not to sue provisions in the FCD and the derivative release

provisions in the Closure Order.


29 MINNESOTA/2012365.0037/12105686.6

77. The Government's threat of a cost recovery action for the emergency

removal action and the non-time critical removal action is an anticipatory violation and

breach of the covenant not to sue provisions in the FCD and the derivative release

provisions in the Closure Order.

78. Land O'Lakes, as the immediate predecessor in interest to Hudson, is

covered by the covenant provisions and the derivative release provisions and is entitled to

enforce them.

79. Land O'Lakes seeks a declaration of present and future legal obligations

and rights of the parties under this Court's FCD and Closure Order with respect to EPA's

UAO and threatened cost recovery claims for EPA's emergency removal, non-time

critical removal, RI/FS costs and other costs at the Site.

81. Land O'Lakes seeks a declaratory judgment concerning the rights and

liabilities of the parties pursuant to 28 U.S.C. §§ 2201, 2202, 42 U.S.C. § 9613(g)(2),

Rule 57, Fed.R.Civ.P. and Rule 71, Fed. R. Civ. P.

82. The Declaratory Judgment Act, 28 U.S.C. § 2201, provides that in a case of

actual controversy, a court may declare the rights and other legal relations of any

interested party seeking such a declaration.

83. An actual and substantial controversy exists between Land O'Lakes and the

Government as to Land O'Lakes' past, present and future non-liability under this Court’s

orders.

84. Absent a judicial declaration setting forth the parties' rights, duties and

obligations with respect to the federal orders, multiple legal actions may result.


30 MINNESOTA/2012365.0037/12105686.6

85. Land O'Lakes is entitled to a declaratory judgment of past, present and

future non-liability under the FCD and Closure Order provisions with respect to EPA's

UAO and threatened cost recovery action for ODEQ's RI/FS costs and EPA's emergency

removal and non-time critical removal costs at the Site.

VI. Prayer for Relief

WHEREFORE, Land O'Lakes requests the following relief: a. Declaratory judgment of non-liability in favor of Land O'Lakes and against

the Government;

b. Attorneys and expert witness fees and costs, as allowed by law; and

c. Such other and further relief in favor of Land O'Lakes and against the

Government as this Court deems just and proper.

Respectfully Submitted,

/s/ Mark D. Coldiron Mark D. Coldiron, OBA # 1774 Stephen L. Jantzen, OBA # 16247 Ryan Whaley Coldiron Jantzen Peters & Webber PLLC 900 Robinson Renaissance 119 North Robinson, Ste. 900 Oklahoma City, Oklahoma 73102 E-mail: [email protected] E-mail: [email protected] Telephone: 405.239.6040 Telefax: 405.239.6766

Byron E. Starns Pro Hac Vice Admission Pending


31 MINNESOTA/2012365.0037/12105686.6

Stinson Leonard Street LLP 150 South Fifth Street, Suite 2300 Minneapolis, MN 55402 Telephone: 612.335.1516 Telefax: 612.335.1657 E-mail: [email protected] Mark E. Johnson Pro Hac Vice Admission Pending Stinson Leonard Street LLP 1201 Walnut Street Suite 2900 Kansas City, MO 64106 Telephone: 816.691.2724 Telefax: 816.412.1208 E-mail: [email protected] Attorneys for Plaintiff Land O'Lakes, Inc.


Case 5:15-cv-00683-L Document 1-1 Filed 06/23/15 Page 1 of 67

Exhibit 5

Supplemental Brief of the HudsonLiquidating Trust RegardingHudson's Motion to Terminate

Consent Decree


74;a21W=A 43. • NI,,• .

UNITED STATES DISTRICT COURTWESTERN DISTRICT OF OKLAHOMA

THE UNITED STATES OF AMERICA,

Plaintiff,

v

HUDSON REFINING CO., INC.HUDSON OIL CO., INC.,

Defendants.

FILk. I' 3 1994

Rait--pl. G. Dc., atmU.S. DIST. COURT 'Eti-ERil DIST, OF OKLA, DEPUTY

§ CIVIL ACTION NO. 84-202VA

SUPPLEMENTAL BRIEF OF THE HUDSON LIQUIDATING TRUST REGARDING HUDSON'S MOTION TO TERMINATE CONSENT DECREE

COMES NOW, Walter Kellogg, Trustee of the Hudson Liquidating Trust ("Hudson

Trust"), on behalf of Hudson Refining, Co., Inc., and Hudson Oil Co., Inc., by and through the

Trustee in Bankruptcy, in the above-entitled action by and through its attorneys of record, and

files this Supplemental Brief pursuant to the request of the Honorable Judge Wayne Alley on

August 26, 1994.

I. Background

DUring the August 26, 1994, hearing on Hudson's Motion to Terminate Consent Decree,

Hudson Trust orally modified the relief it requested from the Court by requesting the Court to:

(1) order the Trustee to complete the Work Plan of the Final Consent Decree ("FCD") with

available funds in the Hudson Trust, and- (2) order that upon completion of the Work Plan, the

Trustee and Hudson Trust, its successors and assigns are released from any further obligation

under the FCD.

Just prior to the August 26, 1994, hearing, the United States filed a Supplemental Report

Regarding Hudson's Motion to Terminate Consent Decree ("Supplemental Report"). In the

SUPPLEMENTAL BRIEF OF THE HUDSON LIQUIDATING TRUST - PAGE 1


Supplemental Report the United States claimed that based on the August 17, 1994, A. T. Kearney

Report (attached as Exhibit "A" to the United States' Supplemental Report), the Corrective Action

elements of the FCD (i. e., Tank Cleanout, Soil Excavation, Biotreatment of Contaminated Soil,

Removal of North Oily Water Pond (NOWP) Sludges and Soils, and Groundwater Remediation)

was completed except for Biotreatment of Contaminated Soil and Groundwater Remediation. At

the hearing the Hudson Trust agreed with the conclusions of the A. T. Kearney Report and

therefore requested the Court to allow it to use Hudson Trust funds to: (1) perform additional

analysis of relevant soils and groundwater to determine their status, and (2) perform any

additional remediation to complete the Work Plan requirements of the FCD.

Based on these developments, the Court ordered supplemental briefing on two questions.

First, other than the obligation created under the FCD, is the Trustee under an obligation to

perform the Work Plan? Second, what funds remain in the Hudson Trust and what is their

availability to the Trustee to complete the obligations of the Work Plan? Parts II and III, infra,

discuss these two issues. Finally, Part IV provides a short report of recent discussions between

the parties to narrow outstanding issues.

II. Obligations Concerning Performance ofFinal Consent Decree

In January 1984, Hudson Oil Company, Inc., Hudson Refining Company, Inc., and several

regional affiliates (collectively "Hudson Oil Company") filed Chapter 11 proceedings in the

United States Bankruptcy Court for the District of Kansas (the "Bankruptcy Court"). The

unsecured creditors' committee in those cases filed, and the Bankruptcy Court confirmed, the

Third Amended Joint Plan of Reorganization dated July 16, 1990 (the "Plan"), a true and correct

copy of which is attached hereto as Exhibit "A."



Prior to confirmation of the Plan, and in connection with administration of the bankruptcy

estates of Hudson Oil Company, two significant transactions occurred concerning a petroleum

refinery owned by the bankruptcy estates. First, on December 10, 1987, Hudson Oil Company,

through its bankruptcy trustee and with the approval of the Bankruptcy Court, entered into the

FCD entered by this Court. The FCD required Hudson Oil Company, by and through the

Trustee, to establish a $1,000,000 escrow to fund the required corrective action. The FCD was

explicit that the Trustee was expected to expend even more than such $1,000,000 if necessary to

perform the FCD ("The amount of money escrowed pursuant to this Section shall in no way limit

Defendants' responsibility to pay all costs necessary to comply with this Decree." -- Page 8 of

FCD). The FCD also purported to "apply to and be binding upon and exercisable by the parties

to this action, and their successors and assigns." (page 2 of FCD -- emphasis added)

Importantly, the FCD anticipated that the defendants might sell the refinery before completion

of the corrective action and, therefore, provided:

Defendants agree to include in any contract of sale in deedtransferring ownership . . of the Cushing Refinery a provisionthat any such party shall be bound by the requirements of this FinalConsent Decree . . . and that the United States shall be specificallydesignated a third party beneficiary in such instrument ofconveyance for the purpose of enforcing the requirements of thisFinal Consent Decree.

(Page 3 of FCD)

Second, well after entry of the FCD and well into the Trustee's performance thereunder,

the refinery was sold to U.S. Refining and Marketing, Inc. or its assign pursuant to the

Agreement for Sale and Purchase of Assets (the "Sale Contract"), a true and correct copy of

which is attached hereto as Exhibit "B." The Sale Contract contained a section of representations,

SUPPLEMENTAL BRIEF OF THE HUDSON LIQUIDATING TRUST -.PAGE 3


warranties and covenants of the seller (Hudson Oil Company, through the bankruptcy trustee),

including the following:

5.3 Environmental Issues and Work. Seller has performed themajority of alI the work required under the Final Consent Decree. . . Seller will complete any and all work in compliance with theFinal Consent Decree, the EPA Work Plan or any other order ordecree arising out of or associated with The U.S. v. Hudsonlitigation. Seller shall hold Buyer harmless from any litigationarising out of Seller's inability to complete or perform the work asoutlined in the [Final Consent Decree] or the EPA Work Plan orany other judgment or decree or associated work required or arisingout of The U.S. v. Hudson litigation.

(Page 5-6 of Sale Contract). The Sale Contract also provided that the bankruptcy trustee would

convey the refinery by a special warranty deed "subject . . . to . . . The U.S. v. Hudson." (Page

13 of Sale Contract). Section 9.2 of the Sale Contract again addressed the requirements of the

FCD:

Seller will complete all work to be performed by Seller under • . .the terms of the FCD . . . as set forth in the FCD and any work tobe performed as directed by the Oklahoma State Department ofHealth in a good and workmanlike manner and in accordance withthe respective terms thereof. Seller shall be solely responsible forall work related to the [FCD] and such costs deemed appropriate tocomplete the EPA work plan and Seller shall hold Buyer harmlessfrom all cost incurred relating [sic] the [FCD], EPA work plan orany other judgment or decree arising out of the U.S. vs. Hudsonlitigation.

The Sale Contract was approved by the Bankruptcy Court after notice to alI creditors,

including service of the Sale Contract upon all of the government agencies who were creditors

(Department of Labor, Department of Energy, Environmental Protection Agency, Internal

Revenue Service) and their counsel. Indeed, the EPA actively participated in the drafting of the



Sale Contract, particularly as regards language pertaining to the FCD.1 Accordingly, all parties,

including especially the EPA, were aware of, and did not object to, the provisions in the Sale

Contract binding the bankruptcy estates of the Hudson Oil Company, through their bankruptcy

trustee, to perform the FCD and indemnify the buyer against all costs associated with the FCD.

Because the Sale Contract was the agreement of Chapter 11 bankruptcy estates, through their

bankruptcy trustee, approved by the Bankruptcy Court, the obligations and undertakings

thereunder became administrative obligations enjoying the highest priority in the distribution

scheme of the United States Bankruptcy Code. 11 U.S.C. §§ 503(b) and 507 (a),2

The Creditors' Plan as confirmed by the Bankruptcy Court provided, generally, that all

of the assets and obligations of the bankruptcy estates would be transferred for the benefit of

creditors to the Hudson Liquidating Trust with Walter Kellogg as trustee (the "Trustee). The

non-cash assets were to be sold by the Trustee. Claims against, and obligations of, the

bankruptcy estates were to be satisfied by the Trustee from the assets of the Hudson Liquidating

Trust according to the classifications and treatments afforded specific claims, or groups of claims

in the Plan. The Plan set forth.16 classes of claims. Some classes contained a single claim, such

as Class 8 containing only the EPA claim for performance of the FCD, Class 9 containing only

I In 1993, the purchaser of the refinery (U.S. Refining & Marketing, Inc.) filed banluptcy. As part of the liquidationof the purchaser's assets it has contracted to sell the Ream to Ameritex Corporation, subject to approval of the BankruptcyCourt (A true and correct copy of the Contract for Purchase and Sale is attached as Exhibit "C".) Pursuant to §4.3 of theContract, the Trustee, Walter Kellogg, is obligated to complete its obligations under the FCD and obtain an official "FinalApproval" of the FCD. If the Trustee does not complete its obligations under the FCD, Ameritex may terminate the Contractand the Trust Estate would be subject to damage claim by the Estate of U.S. Refining, Inc., the original purchaser; or, Ameritexmay decide to close and then file a claim against the Trust Estate for breach of representations in §4.3 of the Contract. In eitherevent, the assets of the Trust Estate are still subject to claims for failure to perform the Work Plan of the FCD.

2 Transactions that occur during bankruptcy administration and are beneficial to the bankruptcy estate give rise toadministrative claims. In re Frontier Properties,Inc., 979 F.2d 1358, 1367 (9th Cir. 1992) (damages resulting from a bankruptcytrustee's refusal to close the purchase of land under a contract assumed by the trustee after commencement of the bankruptcy casehave first priority as administrative expense); In re dartran, Inc. 732 F.2d 584 (7th Cir. 1984); In re Hemingway Transport, Inc,,126 B.R. 656 (Bankr. D. Mass 1991) (postpetition purchaser• of property from the bankruptcy estate has first priority,administrative claim for indemnification or contribution when the purchaser subsequently incurs response costs for environmentalconditions on the property previously caused by the debtor).



the claim of the Department of Energy ("DOE") for approximately $30 million and Class 10

containing only the claim of the Department of Labor ("DOL") for approximately $13 million.

With respect to the Class. 8 EPA claim, the Plan provided that the Hudson Liquidating

Trust "shall assume and perform all of [the Hudson Oil Company's] unperformed obligations

under the FCD in satisfaction of the EPA Claim." (Plan, page 21). As discussed above, funding

of the obligations under the FCD was not restricted to the $1 million escrow, but, rather, was

open ended. Accordingly, the Hudson Liquidating Trust became obligated, by virtue of the

Bankruptcy Court's direct order confirming the Plan, to perform the FCD whatever the cost.

Class 2 claims pertain to administrative claims. The Plan provides that such claims would

be paid in cash, in full, either on the Effective Date or when allowed. The provision was

intended to comply with 11 U.S.C. § 1129(a)(9), which provides that a Plan may not be

confirmed at all unless it affords payment in full and in cash of all administrative claims. As

discussed above, the claim of the buyer of the refinery for indemnity against costs associated with

the FCD, if any, was or would be an administrative claim with the highest priority for payment

under 11 U.S.C. § 507(a)(1). The general unsecured claims of the DOE and DOL, in contrast,

enjoyed no priority whatsoever, and; under general bankruptcy law would not be entitled to

payment until after all priority claims were paid in full.

In summary, were the Trustee to discontinue performance of the FCD, the buyer of the

refinery arguably would be obligated to complete that performance at the insistence of the EPA

and would have a claim against the Trustee for reimbursement, which would be required to be

paid in full in cash as an administrative priority claim. Thus, there is no advantage to the

agencies to cause the Trustee to cease performance; savings from cessation of performance

become payment obligations to the refinery buyer (although it can be expected that the claims



of the refinery buyer will substantially exceed the Trustee's expected costs of completion because

the refinery buyer will spend substantial sums in attorneys' fees and similar costs just getting up

on the learning curve).

III. Funds Available To Complete PerformanceOf Final Consent Decree

As explained above, under the Plan as approved by the Bankruptcy Court, the Trustee has

the absolute obligation to complete performance of the FCD, as it might be amended. The

question has arisen whether the Trustee is limited as to the funds that might be accessed by him

for that purpose. The Court should have an understanding of the several sources for funding that

might be available. The balances are as of July 31, 1994, and are not believed to be materially

different now.

The Trustee has approximately $58,000 in the Hudson Liquidating Trust's general

operating account. For the most part, these funds represent revenues from operation and are

available for any trust purpose.

The Trustee maintains a separate account with a balance of approximately $200,000,

which the DOE apparently believes is restricted to payment of the DOE's claim. This account

was established with the consent of the DOE in the original amount of $360,000 as a safety fund

to cover unanticipated costs of the Trustee arising from the Plan.3 The difference between the

present balance and the opening balance of this account was utilized by the Trustee, after

exhaustion of the $1,000,000 EPA escrow, to continue to perform his obligations under the FCD.

3 A short explanation of how the Plan worked is necessary to understand this account. The Plan called for the Trustee topay the DOE all "Available Caste after payment in full of various claims (including Class 2 administrative claims). The term"Available Cash," however, was defined by the Plan to mean all cash on hand on the Effective Date of the Plan except the$1,000,000 EPA escrow, the closure/post-closure escrow (discussed later in this memorandum), and "reasonable amountsnecessary to enable the Liquidating Trustee to operate, preserve and dispose of the Trustee Assets, and dose the HudsonBankruptcy estates consistent with the Hudson Liquidating Trust Agreement. 1.10 of Plan) Such $360,000 was held back fromDOE for these latter purposes.



Arguably, the balance of these funds are similarly available for that purpose under the broad

language of the Plan (see footnote 2). In the event the Trustee becomes obligated to make

administrative claim payments to the refinery buyer as a result of cessation of performance of the

FCD, this fund would appear to be available for that purpose because payments of "Available

Cash" to the DOE are subject to first paying Class 2 administrative claims (see Section 4.9 of

Plan). Indeed, should any obligation to the refinery buyer exceed the balance in this fund or

other funds, arguably the DOE will be required to disgorge a portion of prior payments made to

the DOE by the Trustee (exceeding $6,000,000) because the DOE was not entitled to payments

until all administrative claims were paid in full.

A third fund is the closure/post-closure escrow on behalf of the State of Oklahoma relative

to the "land treatment unit," which is a portion of the refinery still owned by the Hudson

Liquidating Trust. The FCD requires the maintenance of this escrow and the Trustee believes

no portion of the approximately $284,000 balance is presently available for any purpose other

than closure of the land treatment unit. However, the Trustee believes that closure costs will be

less than this balance and, therefore, some of these funds will be available some day for any

legitimate trust purpose.

The Trustee has approximately $25,000 on deposit to cover priority claims as to which

the claimants failed to cash their distribution checks. These funds are not available because they

will be paid either to the claimants, if they appear, or to a government unit as escheat in behalf

of such claimants.

There is a fund as to which the Trustee has no access. It is generally referred to as the

"Unsecured Creditors' Fund" and is controlled directly by the chairman of the creditors'

committee and its counsel for the purpose of making distributions to unsecured creditors. Most



of the fund was distributed to trade creditors on a pro rata basis soon after the effective date of

• the Plan, although certain amounts are yet to be distributed pending resolution of disputed claims.

Additionally, the sum of $440,000 is potentially distributable from this fund to the DOL pursuant

to complicated provisions of the Plan.4 It is not believed that such $440,000 will be available

for general trust purposes in light of the restrictive language of the Plan.

Finally, although cash has not yet been realized by the Trustee at this time, the Trustee

does expect to sell the remaining assets of the trust for gross proceeds exceeding $2-3 million.

Contracts for sale of such assets are pending. The Plan calls for payment of the "Net Proceeds"

from such sales to the DOL. However, the term "Net Proceeds" is defined as net cash "following

payment" of several categories of expenditures "consistent with the Hudson Liquidating Trust

Agreement," including (a) "normal expenses of operation and maintenance of the Trust Assets,"

and (b) "reasonable fees and expenses of professionals engaged by the Liquidating Trustee."

(Section 1.50 of PIan). The Trustee believes that the Trust's expenses of performing the FCD,

especially the costs of the Trustee's professionals in that regard, are payable out of gross proceeds

of sale of trust assets before any distribution of Net Proceeds to the DOL under the PIan.

The Hudson Liquidating Trust Agreement is attached as Exhibit "A" to the Plan (see Tab

1). At Paragraph 2.3, the trust agreement provides that:

. • • In determining whether there are any Net Proceeds availablefor distribution, the Trustee shall first pay . . . the compensation,fees and expenses . . . of the trustee [and] . . . normal andcustomary operating expenses of the Trust . . . (emphasis added).

Section 4.10 of the Plan required that as much as $446,000 of the sums comprising the Unsecured Creditors' Fund be heldback from distribution to creditors until all remaining Mist assets were sold. If the gross sale price of the remaining assets wereless than $5,000,000, then the fund would have to make funds available for the DOL claim. The maximum payment would be$440,000. Although not all trust properties have been sold, it appears the Unsecured Creditors' Fund will have to make themaximum payment.



Importantly, the same paragraph of the trust agreement provides, with respect to

determining whether Net Proceeds are available for distribution, that:

. . . the Trustee may, in his discretion, give due consideration to thepossibility there may exist unasserted claims against the Trust orasserted claims which are not yet due and payable . . .

Needless to say, it is the Trustee's position that the combined effect of the language of the Plan

and the trust agreement, which is incorporated into the Plan, is to permit the Trustee to use

proceeds of sale of trust assets to either (a) perform the FCD as normal and customary operating

expenses of the trust, particularly because the Plan explicitly provided that the Liquidating Trust

shall assume and perform the FCD, or (b) provide for payment of the asserted or unasserted

claims of the refinery buyer that might arise if the Trustee were to cease performance under the

FCD.

Summarizing this discussion concerning access to funds to complete the FCD, as it might

be amended, the Trustee believes he should be able to use the following funds or sources of

funds:

(a) $58,000 general operating funds;

(b) $200,000 in the so-called DOE account;

(c) if necessary, disgorgement of up to $6 million of payment previously made to theDOE;

(d) closure fund of $284,000 to the extent any portion exceeds closure costs; and

(e) proceeds of sale of trust assets.

IV. Status of Negotiations Between the Parties and Conclusion

The position of the United States seems to be: "Let's stop the Trustee from spending

money performing

Date post:	18-Oct-2020
Category:	Documents
Upload:	others
View:	3 times
Download:	0 times

EXHIBIT 1-10 SLIP SHEETSyosemite.epa.gov/oa/EAB_Web_Docket.nsf/Attachments By ParentFilingId...Sep...

Documents